Fitch Affirms Caisse centrale Desjardins' Registered Covered Bonds at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Caisse centrale Desjardins (CCD; 'AA-'/'F1+', Outlook Stable) outstanding CAD-equivalent 2.97 billion registered mortgage covered bonds at 'AAA' with a Stable Rating Outlook. The affirmation follows Fitch's annual review of the program.

KEY RATING DRIVERS

The rating is based on CCD's 'AA-' long-term Issuer Default Rating (IDR), an unchanged Discontinuity Cap (D-Cap) of 3 (moderate high risk) and the 93.7% asset percentage (AP) that Fitch takes into account in its analysis, which equals the Fitch's 'AAA' breakeven AP. The Stable Outlook for the covered bonds rating is due to the Stable Outlook on the Canadian sovereign and on CCD's IDR. Since bail-in is not an explicit provision under the current Canadian framework, in Fitch's view, the IDR remains a satisfactory indicator of the likelihood that the recourse against the cover pool would be enforced, and no IDR uplift is applicable.

The 93.7% AAA' breakeven AP, corresponding to a breakeven OC of 6.7% is driven by the cover pool's credit loss of 6.1%, followed by the asset disposal loss component of 4% due to maturity mismatches in a AAA scenario. The cash flow valuation component leads to a lower 'AAA' breakeven OC by 1.7% due to the short weighted average life of the mortgages, generally three to five years, which results in a high value for the cover pool. The breakeven AP considers whether timely payments are met in an 'AA' scenario and tests for recoveries given default of at least 91% in an 'AAA' scenario.

The 6.1% 'AAA' credit loss represents the impact on the breakeven OC from the 15.5% weighted average (WA) default rate and the 63% WA average recovery rate for the mortgage cover assets. This reflects a reduction in the 'AAA' credit loss from Fitch's prior analysis of 7.1% due to the cover pool's lower WA sustainable loan-to-value of 62.6% vs. 70.1%. The assets remain 100% concentrated in Quebec, for which Fitch assumes a sustainable market value decline of approximately 22%.

Fitch takes into account the contractual AP maintained in the program since amounts in excess of the contractual commitment are secured back to CCD through the demand loan and therefore not available to covered bond holders in the event of issuer default.

RATING SENSITIVITIES

The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by three or more notches to 'A-' or below; or (ii) the number of notches represented by the D-Cap is reduced to 0; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 93.7%.

The Fitch breakeven AP for the covered bond rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a credit update report, which will shortly be available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Covered Bonds Rating Criteria' (August 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum' (May 2014);

--'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum' (February 2015);

--'Canadian Residential Mortgage Loan Loss Model Criteria' (May 2014).

Applicable Criteria and Related Research:

Covered Bonds Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753052

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861806

Canadian Residential Mortgage Loan Loss Model Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747797

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981087

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Contacts

Fitch Ratings
Primary Analyst:
Vanessa Purwin, +1-212-908-0269
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Roger Lin, +1-212-908-0778
Director
or
Committee Chairperson:
Suzanne Mistretta, +1-212-908-0639
Senior Director
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Vanessa Purwin, +1-212-908-0269
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Roger Lin, +1-212-908-0778
Director
or
Committee Chairperson:
Suzanne Mistretta, +1-212-908-0639
Senior Director
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com